A Diagnostics & Imaging Week

Applera (Norwalk, Connecticut) said its board of directors has approved a restructuring of its Celera Diagnostics (Alameda, California) joint venture, whereby, effective Jan. 1, Applied Biosystems (Foster City, California) has transferred its 50% interest in the j-v to Celera Genomics (also Norwalk) in exchange for a package of considerations to Applied Biosystems.

Since formation in 2001, Celera Diagnostics has been held equally by Applera's two business groups, Applied Biosystems and Celera Genomics (Norwalk, Connecticut).

"Several factors have contributed to our conclusion that this restructuring is in the best interests of both Applied Biosystems and Celera Genomics," said Tony White, president, CEO and chairman of Applera. "Transferring full ownership of Celera Diagnostics to Celera Genomics acknowledges growing synergies between these businesses; provides greater visibility for the promising developments at Celera Diagnostics; responds to shareholder interests for simplicity in our organizational structure; and provides investors with a direct means to invest in the growing diagnostics business."

"At the same time, the restructuring enables an expansion of Applied Biosystems' field of activity to include end-user clinical diagnostic instrumentation in addition to its current instrumentation for the research market," White added. "Applied Biosystems and Celera will work together and, through the alliance Celera Diagnostics has with Abbott Laboratories [Abbot Park, Illinois], will bring their unique skills in instrument and assay development to serve the diagnostic marketplace."

Applera also reported that it has restructured its alliance with Abbott. The companies will continue to work with each other exclusively through a profit sharing arrangement between Abbott and Celera in most areas of molecular diagnostics, while both companies will also work outside the alliance in other "selected areas."

As part of the restructuring, Celera has paid Applied Biosystems $30 million in cash. Celera Diagnostics was established in 2001 to discover and develop new gene- and protein-based diagnostics. Marketed products include the HIV-1 ViroSeq Genotyping System, analyte specific reagents used to detect genetic mutations associated with cystic fibrosis, and analyte specific reagents used for viral load monitoring and genotyping hepatitis C.

Kyphon (Sunnyvale, California) said it has agreed to acquire InnoSpine (Los Altos Hills, California), a private company focused on developing a technology platform for the diagnosis and treatment of axial low back pain due to disc degeneration.

Terms call for an initial payment of about $2.5 million in cash to the shareholders of InnoSpine, plus the possibility of up to an additional $27.5 million in cash or stock, based on achievement of clinical and other milestones as well as royalties on future net sales.

Kyphon said it anticipates there will be a one-time charge related to in-process R&D affecting earnings per share for the period ending Dec. 31, 2005. The transaction is expected to close this month.

InnoSpine's initial technology was developed with the aim of improving the results available from existing discography techniques through a method known as functional anesthetic discography (FAD), which involves a single-use disposable with no capital equipment requirements.

In contrast to traditional discography, FAD is a minimally invasive procedure that utilizes a catheter-based system anchored in the disc space to deliver mild anesthetic to a candidate disc while the patient loads his or her spine in positions that cause pain. If the pain sensations from normal loading are relieved by anesthetic delivery to the degenerated disc, the disc can be identified for further treatment.

The FDA in April 2005 cleared InnoSpine's FAD devices to deliver local anesthetic, radiopaque contrast or saline solution to the intradiscal space. Based on the outcome and effects of the injected anesthetics, the FAD technology can be used to provide diagnostic information to the physician. Various existing codes can be used for facility and physician reimbursement, according to Kyphon.

Kyphon estimates that about 200,000 patients with persistent, severe axial back pain could be indicated for this procedure each year in the U.S., including the majority of patients undergoing spine fusion at one or more levels. "Improving disc disease diagnosis has increasingly become important to assure proper identification and therapy delivery," it said in a statement.

The company anticipates introducing FAD to orthopedic spine surgeons, neurosurgeons, interventional radiologists and interventional neuroradiologists in the U.S. in 2Q06 through its direct sales force.

Kyphon develops devices designed to restore spinal function using minimally invasive technologies. Its initial KyphX line of products is used in Balloon Kyphoplasty, a minimally invasive procedure to treat spinal fractures caused by osteoporosis or cancer.

In other dealmaking news:

• Natus Medical (San Carlos, California) reported completing its purchase of Bio-logic Systems (Mundelein, Illinois) through the acquisition of all Bio-logic common stock for $8.77 a share. In addition, for each share that was subject to a Bio-logic stock option, Natus paid an amount equal to the excess of $8.77 over the exercise price of the option.

Bio-logic develops computer-based electrodiagnostic systems and related disposables for use by hospitals, clinics, school districts, universities and physicians. The systems conduct tests used to aid in the diagnosis of certain neurological disorders, brain disorders and tumors, and sensory disorders, including audiological and hearing screening and diagnosis.

"[T]he combination of Natus and Bio-logic will strengthen our position as a market leader in the development of products for the detection, treatment, monitoring, and tracking of common disorders in newborns and children," said Jim Hawkins, president and CEO of Natus. "In addition, we will be supplementing our hearing screening business with the addition of Bio-logic's leading diagnostic hearing products. The acquisition will also open up new market opportunities for Natus in the areas of EEG monitoring for neurology and in the growing diagnostic sleep market."

Natus financed a portion of the purchase price through a new senior secured credit facility obtained through Wells Fargo Bank. The company said it expects to repay the loan prior to the end of its term. Natus also utilized about $12.8 million of Bio-logic's cash to fund the acquisition.

Natus makes products for the detection, treatment, monitoring, and tracking of common disorders in newborns and children.

• Diagnostic Ultrasound (DU; Bothell, Washington), a provider of hand-held ultrasound instruments, reported purchasing Saturn Biomedical Systems (Burnaby, British Columbia), a manufacturer of the GlideScope video laryngoscope.

Saturn's GlideScope assists with anesthesia intubations in surgery and in the emergency room, and designed to make the passage of a breathing tube into the airway during anesthesia safe, reliable and easy.

An estimated 40-50 million anesthesia procedures are administered each year in North America, and in up to 50% of cases, it is necessary for anesthesia and emergency specialists to place an endotracheal tube to control respiration.

Privately held, DU specializes in application-specific ultrasound devices for the urology, acute care, primary care, and extended care markets.

DU recently reported receiving the first phase of a $34 million infusion of capital to fund growth initiatives.

• Imagin Molecular (Oak Brook, Illinois) reported forming a wholly owned subsidiary, Imagin Nuclear Partners (INP) that will own, operate and administer out-patient medical diagnostic imaging centers that utilize positron emission tomography (PET) and PET/computed tomography (CT) scanning equipment.

Imagin said that INP will specialize in using evidence-based medicine driven by bioinformatics to provide cost-effective benefits to the joint venture partner community.

Imagin describes its goal as to become "a leading investor and developer of PET Molecular Imaging businesses . . . throughout North American and international markets."

Imagin is also the parent of Cipher Multimedia, a new media marketing company providing a distribution solution for publishers of digital content. Cipher will develop marketing campaigns that will assist Imagin, Positron and other companies in product marketing and providing publishers a distribution solution for digital content.

Positron manufactures medical imaging devices utilizing PET technology under the trade name Posicam. Posicam systems incorporate patented and proprietary software and technology for the diagnosis and treatment in cardiology, oncology and neurology.

• Medical Home Products (MHP; St. Petersburg, Florida) said it has completed its agreement to merge with Sequoia Asset Management (Encinitas, California).

MHP said the move will further broaden its overall product portfolio and accelerates its growth into the $2.8 billion medical self-test kit market. MHP is a resale provider of more than 200 self-test medical kits through e-commerce and direct sales affiliates.